Mum\'s Tavern Corp.\'s CFO has decided to take a closer look at the firm\'s shor
ID: 1171543 • Letter: M
Question
Mum's Tavern Corp.'s CFO has decided to take a closer look at the firm's short-term assets and liabilities. Mum's Tavern Corp.'s balance sheet follows. Balance Sheet Cash Accounts receivable Inventory Total current assets $200,000 $110,000 $170,000 $480,000 Accounts payable Accruals Notes payable Total current liabilities Long-term debt Total common equity Total liabilities and equity $170,000 $55,000 $135,000 $360,000 $350,000 $190,000 $900,000 Net plant and equipment $420,000 $900,000 Total assets The value of Mum's Tavern Corp.'s working capital is , while its net working capital is The value of Mum's Tavern Corp.'s net operating working capital is Mum's Tavern Corp.'s current ratio is If Mum's Tavern Corp. decides to purchase inventory on account, its current ratio willExplanation / Answer
Answer:
The Value of Mum’s Tavern Corp.’s working capital is $480,000, while its Net Working capital is $120,000.
Working Capital = Current Assets
Working Capital = $480,000
Net Working Capital = Current Assets – Current Liabilities
Net Working Capital = $480,000 - $360,000
Net Working Capital = $120,000
The Value of Mum’s Tavern Corp.’s Net Operating working capital is $255,000
Net Operating working capital = Current Assets – (Current Liabilities – Notes Payable
Net Operating working capital = $480,000 – ($360,000 - $135,000)
Net Operating working capital = $480,000 - $225,000
Net Operating working capital = $255,000
Mum’s Tavern Corp.’s Current Ratio is 1.33
Current Ratio = Current Assets / Current Liabilities
Current Ratio = 480,000 / 360,000
Current Ratio = 1.33
If Mum’s Tavern Corp. decided to purchase inventory on account, its current ratio will remain same.
As, Current Ratio = Current Assets / Current Liabilities
The purchase of Inventory on account will increase Current Assets and Current Liabilities by same amount.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.